Former Citi Chair: ‘Management Turmoil,’ Complexity Behind Problems

BOSTON—The former chairman of Citigroup, Inc. gave an unsolicited diagnosis of the bank’s problems Monday, saying complexity and “managerial turmoil” were likely contributors to its failure in last week’s stress test.

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John Reed, who left Citi in 2000, said he had no special knowledge of the bank’s situation beyond press reports. But he surmised that the bank’s problems reflect its complexity, in geography but more importantly in its diverse lines of business in both capital markets and traditional banking.

Citi was “unable to create what the Fed is looking for and when you’re talking about an institution that is large in size, diverse in activities, and has gone through a certain amount of managerial turmoil, you can well imagine that it was very difficult for them to respond to the request that they got,” Mr. Reed said at a conference here hosted by the U.S. Office of the Comptroller of the Currency and Boston University.

A Citi spokesman didn’t immediately respond to a request for comment about Mr. Reed’s remarks. UPDATE: The Citi spokesman declined to comment on Mr. Reed’s remarks.

The Fed last week barred Citi from boosting its dividend, finding flaws with its ability to measure losses across its operations in a hypothetical severe economic downturn. The decision was a sting for the bank that hurt even more, given the Fed said it had previously raised the issues with Citi, which failed to correct them.

Citi Chief Executive Michael Corbat rushed back to New York from South Korea last week to do damage control and said he takes responsibility for the flawed results.

“Size is one thing, but multiple business lines is the other,” Mr. Reed said. “That makes for a very difficult management structure.”

Investors looking for more information about the test results than the Fed’s general description released last week were also disappointed Monday when two board members at big banks that had dicey results declined to comment on the outcome.

Gerald Corrigan, chairman of the national bank of Goldman Sachs Group Inc., appeared on a panel Monday morning with former Federal Deposit Insurance Corp. Chairwoman Sheila Bair, who sits on the board of Banco Santander S.A. The two discussed the effectiveness of U.S. financial regulation since the 2008 crisis, but neither addressed the results of the stress tests, which found deficiencies with crisis planning at Santander’s U.S. unit and caused Goldman Sachs to reduce its request for capital it will return to shareholders this year.

On the sidelines of the conference, Mr. Corrigan forwarded questions about the results to the bank’s public relations shop.
Goldman didn’t disclose its initial capital plan and, unlike virtually all of its peers, didn’t say what the Fed had ultimately approved. But analysts estimated the bank’s payout at about $7 billion, a figure they reached by looking at how much Goldman’s capital ratios shrunk when its capital requests were included. Based on those same calculations, Goldman’s initial plan sought to return about $8 billion, according to an analysis by The Wall Street Journal.

Ms. Bair would not comment on the results directly, though she added that as a general policy, Santander’s board is always seeking a good relationship with regulators.